Sunday, July 19, 2015

The Starbucks Rollercoaster

Starbucks has long been hailed as an innovative and hugely successful company, with credit due in large part to its founder, Howard Schultz. Schultz has driven the vision of the company and its brand from the early days in Seattle, and still sits at the helm as CEO today. At its core, the company is about delivering a personalized, welcoming, neighborhood coffee experience meant to emulate the feel of an Italian café. Over the years, the company has made numerous adjustments to support this endeavor, even when it meant purchasing more expensive equipment, losing some efficiency in order to keep the smell of espresso in the store rather than switching to an automated machine, or retraining baristas company-wide during normal customer hours. These moves point to their commitment to remaining a coherent organization, steadfastly playing to their strengths and core mission.

The company’s mission statement and values speak to inspiration, warmth, dignity, respect, and accountability. But they also detail innovation, courage, growth, and challenging the status quo. So they walk a fine line between honoring their core strategies and continuing to expand and innovate. And for all their success in the last 40+ years, Starbucks has largely remained true to their mission, but they have stumbled. And they may be poised to stumble again.

When Schultz left his role as CEO in 2000 to focus on Starbucks global strategy, the company continued diversifying and expanding its offerings. They added different types of food, music, and retail items, while rapidly expanding storefronts in the US – at points, more than 1,300 new stores in one year. Stock continued to grow for a few years, but as soon as the recession hit, stock prices plummeted and Starbucks continued to falter in this overextended state for several years. When Schultz took back the reins in 2008, he criticized the overexpansion and refocused the company’s efforts on the customer experience while scaling back operations, closing over 1,000 underperforming stores. Since reclaiming the CEO role, Schultz has led the company back to strong financial performance, building the stock price to all-time highs.

But even as Schultz scaled back the company upon his return to the CEO spot, he touted international expansion, which the company has pursued aggressively over the last seven years. More recently their US expansion plans include more than 3,000 stores in five years, and the addition of a significantly higher number of drive-throughs. While I personally find the drive through convenient at times, it doesn’t scream personal neighborhood coffee shop experience. After simplifying food offerings in the past, Starbucks is now expanding their food menu again. In addition, they have purchased several other brands, including Evolution Fresh (juice), Teavana (tea), and La Boulange (bakery) – all in the space of less than three years. And while these acquisitions align with their products, from an outside perspective, I can see that they may be moving too far from their strengths and efficiencies, focusing on increased profit and expansion at the expense of their core desire to provide a warm, inviting, neighborhood coffee shop experience. They may find the past repeats itself if they don’t focus their strategy.

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